Tuesday, August 8, 2006

Adventures in First-Time Homebuying #5: Your Sexy and Glamorous Journey to Pre-Approval, Part 2

Author: Nick
Category: Money
Topics: , ,

only 718 more steps to getting one of these

In the first part of this episode, we discussed how to pay for a house and where to get a loan if you need one. Now let’s take a look at some of the ways you can find the mortgage lender or broker who is right for you.

How the Heck Do I Find the Right Lender or Broker?

The answer to this question depends on your definition of the right lender or broker. Are you looking for the absolute best rate you can on a mortgage loan? Or are you looking for a lender who will maximize the amount you can borrow? Or perhaps you’re willing to take a hit on the price tag of your loan if it means top-notch customer service. In any case, shopping around for a mortgage pre-approval is the perfect opportunity for you to gauge various lenders or brokers in all of these areas. Of course, while lenders and brokers will fight tooth and nail for your business, you’ll need to find some first! Here are some of the ways you can locate parties willing to give you a mortgage loan; they’re listed in my order of preference with the best choices given first.

  • Ask someone you know. This is the best way to put together a list of potential lenders or brokers, hands down. Talk to family, friends, and co-workers to see if they have any good recommendations. This way, you’ll know what to expect if you decide to go with one of their picks.
  • Look into lenders offering first-time homebuyer programs. There’s a good chance your city, county, or state has a special loan program for first-time homebuyers. That’s because they’d love nothing more than for you to become a homeowner and start paying those lovely property taxes. Here is a comprehensive list of first-time homebuyer programs by state. Each program will have a different list of lenders who are approved to grant loans through the program, so talk to a few of them since closing costs can still vary from lender to lender.
  • Walk into your bank(s). Maybe you have a checking or savings account with a couple of local banks or a credit union. If so, chances are that they can hook you up with a mortgage loan, too. Of course, if you’re not happy with your bank’s level of customer service, you should probably shop elsewhere for your loan; but if you’ve been with a bank or credit union for a while and you’re satisfied with their performance, it wouldn’t hurt to give them a call and see what they can do for a long-time customer such as yourself.
  • Pick up a phone book. Most mortgage brokers will have a listing in your local area phone book, so pick it up, flip to “Mortgage Brokers,” and make some calls. Really, though, if you’re going to use a broker, I’d highly recommend choosing one based off someone’s suggestion rather than just thumbing through the Yellow Pages.
  • Use the internet. Sure, you buy your books, electronics, and gallons of milk online, but those are all small potatoes compared to buying a house. You can get pre-approved easily through a variety of internet-based mortgage lenders, and you may even find a better deal online than you would in your local bank. But while you can always pop into your local bank or mortgage lender’s office, you may have some trouble squeezing yourself through the tubes of the internet. If you go this route, your customer service experience will consist largely of e-mails and phone calls rather than face-to-face chats. That may be okay for you, but others will want a real person within driving distance handling their loan applications. And of course, beware of shadier mortgage websites who promise incredible deals; we’ll go over some of the more reputable internet lenders in a future episode.

Pre-Approval vs. Pre-Qualification–Yes, It Matters!

I’ll be brief so we can move on to real business. You want a loan pre-approval which is based on a complete look at your finances. Such an approval will require you to prove your income, show your cash savings, and consent to a credit check. A pre-approval tells you how much a bank will lend to you so you’ll be able to shop for a house you can afford. A loan pre-qualification is absolutely worthless. It does not require a credit check, paystubs, or proof that you have any money in the bank. Heck, I can pre-qualify you right now for a bazillion dollars if I wanted to! In short, you want a pre-approval, not just a pre-qualification.

Four Easy Steps to Mortgage Pre-Approval

Once you’ve put together a list of lenders and/or brokers, it’s time to make some calls or fill out some forms and get yourself pre-approved for a mortgage loan.

  1. Make contact. Many lenders, whether they have physical locations or not, will allow you to apply for a mortgage loan pre-approval online. For internet lenders, that’s probably your only choice other than calling in your application. If your local bank or credit union has a nearby branch, give them a call and find the nearest office that will handle mortgage applications. Then make an appointment to see a loan officer in person. Bring along all that paperwork you gathered in Step 7 of Episode #4. Do the same if you’re meeting with a mortgage broker.
  2. Share your life story. It may be through an online form, it may be over the telephone, or it may be in person with a loan officer; but one way or another, you’re going to be disclosing your entire financial picture in order to get a mortgage loan pre-approval. The lenders or brokers will need all of your stats–income, savings, credit, etc.–to process a pre-approval. You’ll also want to share your intentions–how much you’d like to put down, how much you think you can afford to pay each month, and what types of loan products interest you.
  3. Review available loan products. Based on the figures you provide, a lender or broker should be able to give you several options for loans. Some products may offer better interest rates, while others will allow you to borrow more, and still others may keep your closing costs down. Along with all this informaiton, you should receive a rough estimate of all the costs you can expect to incur for each loan product. Review your options carefully, and choose the one that will work best for you.
  4. Get your pre-approval letter. Once you’ve made your selection, and after the lender or broker processes all of your financial information, you’ll be given that glorious pre-approval letter. Even with a pre-approval letter from one lender, you can still shop around for better offers. But if you’ve shopped enough for loans and want to get started shopping for a home, then you are now free to do so.

There are a few more items about the pre-approval process that I’ll cover in the third and final part of this episode, including a few warnings about obtaining pre-approvals, some ways to tell if you’re getting the best deal you can on a loan, and the different flavors of pre-approval letters that are available to you. I’ll also share my own pre-approval letter adventures and explain why I went with my local bank for a loan rather than with an online lender.

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